Information technologies are a special part of the modern economy, and states strive to create favourable conditions for their development. In Belarus, one of these support tools is the Hi-Tech Park (HTP), which offers unique tax benefits to IT companies.
These benefits not only help to reduce companies’ financial costs but also create incentives to attract foreign investment, develop start-ups, and increase the number of highly qualified specialists. In this article, we will take a detailed look at the main tax benefits that IT companies have in the Hi-Tech Park of Belarus and give a brief overview of tax benefits for IT companies in other countries. Understanding these mechanisms will help IT companies use the advantages offered and find optimal solutions for their growth and development.
Tax Benefits for IT Companies in Belarus
There are no tax benefits for IT companies in Belarus, but this does not apply to IT companies that are residents of the Belarusian Hi-Tech Park.
Who are the “Residents of the Hi-Tech Park”
The residents of the Hi-Tech Park are IT companies and high-tech companies registered in Belarus, and they were able to justify their business projects to the Supervisory Board of the Hi-Tech Park. A successful business project should prove the importance and significance of the company’s work for the IT sector and new technologies. When the Supervisory Board of the Hi-Tech Park accepts a business project, IT companies issue a Certificate of a Resident of the Hi-Tech Park.
The company becomes a resident of the park on the first day of the month following the month in which the Supervisory Board reviewed the business project.
What Tax Benefits do IT Companies that are Residents of the Hi-Tech Park Have
Let’s compare taxes for HTP resident IT companies with taxes paid by other companies.
1. HTP residents do not pay income tax. However, they pay a reduced income tax rate of 9% on some income.
HTP residents are exempt from income tax, except when they act as tax agents and pay income to foreign companies.
Situations where Income Tax Exemption does Not Apply
HTP residents are required to pay income tax at a rate of 9% in the following cases:
- In case of alienation of its share or its part in the authorized capital.
- When implementing an enterprise as a property complex.
- When selling or redeeming securities.
- For interest on the use of funds.
In addition, income tax is paid at a generally established rate of 20% when selling one’s own property 12 months after its acquisition (or obtaining rights to it).
For companies that are not HTP residents, the standard income tax rate is 20%.
2. HTP residents are exempt from value-added tax (VAT) in the framework of trade within Belarus and in a number of transactions with non-residents.
HTP residents are exempt from VAT regarding turnover related to selling services, works, goods, and property rights on Belarus’ territory. It also applies to certain transactions where foreign business partners provide HTP residents in Belarus with the following services and rights (including in electronic form):
- Intellectual property rights.
- Advertising, marketing and consulting services.
- Information processing services.
- Services (works) related to software development, modification, testing, and technical support.
- Hosting services, including comprehensive solutions for hosting and managing websites.
- Services related to searching and transmitting information about potential buyers (consumers).
- Database creation and access services.
In addition, HTP residents are also exempt from paying VAT through customs authorities when importing equipment necessary to carry out their activities and implement investment projects in Belarus.
At the same time, the standard VAT rate for other companies is 20%.
Situations where the VAT Exemption does Not Apply
There are cases when HTP residents must pay value-added tax (VAT). The VAT exemption does not apply in the following situations:
- For export-related operations.
- To the rent that HTP residents receive for renting their real estate.
- Transactions involving the sale of one’s property, including real estate, if more than 12 months have passed since its acquisition or the creation of rights to it.
- In case of sale or use of the equipment imported to Belarus for own needs without payment of customs VAT, within 2 years from its import.
3. The income of foreign companies of HTP residents is subject to income tax at 0% or 5% at preferential rates.
4. Some transactions within HTP are exempt from paying the offshore fee.
HTP residents are exempt from this fee in cases of payments for advertising, marketing and intermediary services, as well as when paying dividends to their founders (participants) or part of the profits accrued to the owner of their property.
The generally established offshore fee rate is 15%. This fee is paid when a Belarusian company transfers money or fulfils obligations to a company registered in an offshore zone or sends funds to an account opened in such a zone.
5. The income of individuals who are founders of HTP residents, including foreign citizens, is subject to income tax at a rate of 9%. Rates of 6% or 0% are also provided, depending on the periods of profit distribution between the founders. The generally established income tax rate is 13%.
6. Income tax on foreign companies
The generally established income tax rates for foreign organizations that do not have a representative office in Belarus range from 6% to 15%. HTP residents use a 0% rate on the income of foreign organizations in cases where they pay income to foreign organizations in the following areas:
- Sale of shares (parts of shares), units or shares of HTP resident organizations, provided that a foreign company owns them by right of ownership for 365 calendar days.
- Data processing and information hosting activities, including web hosting services and comprehensive website management services.
- Data processing services and creation of specialized reports based on them.
- Data entry and processing services.
- Providing a place and time for advertising on the Internet.
- Web portals’ activities are related to the operation of websites and search engines, including the creation and maintenance of Internet address databases.
- Provision of disk space or a communication channel for hosting information on the server and related maintenance services.
- Debt obligations of any type, regardless of the method of their registration, as well as royalties.
- Intermediary and advertising services.
7. Tax on dividends of foreign companies
The tax rate on dividends of foreign companies is 5%, but a more preferential rate can be applied in accordance with international treaties.
8. Real estate on the territory of the HTP that is not used for renting is exempt from property tax.
The real estate tax rate for most commercial companies in Belarus is 1%. Local Councils of Deputies have the right to change these rates, up and down, but not more than twice.
9. Land tax
Land tax rates in Belarus vary depending on the land’s purpose and other factors. For example, the rate for plots for business purposes in cities is 236.84 Belarusian rubles per hectare. HTP residents are exempt from paying land tax for plots within the HTP territory for three years if they build real estate on them for their activities.
The land tax benefit does not apply in cases where HTP residents do not build for their activities on the HTP territory.
10. A customs duty rate of 0% is set when importing equipment necessary for HTP residents to operate in the high-tech sector.
What Tax Benefits do IT Companies Have in Different Countries
In many countries, IT companies receive various tax benefits, which contribute to their development and the growth of the high-tech sector. Such benefits may include lower corporate tax rates, VAT exemption, tax holidays, and other incentive measures.
USA
Several programs in the United States provide tax benefits for IT companies. For example, companies engaged in research and development (R&D) can benefit from a tax credit for R&D. This loan allows IT companies to reduce their tax obligations based on the cost of innovative projects.
India
India offers significant tax incentives to IT companies through special economic zones (SEZ). Companies registered with the SEZ are exempt from paying corporate tax for the first five years and then partially exempt for the next five years. It helps to attract investments and create new jobs in the IT sector.
Singapore
Singapore provides tax incentives to IT companies through innovation and technology development support programs. The Productivity and Innovation Credit (PIC) program allows IT companies to receive tax rebates or grants for investments in technology, automation, and R&D. There is also the possibility of full exemption from capital gains tax.
Ireland
Ireland attracts IT companies with its low corporate tax rate of 12.5%. In addition, the Research and Development Tax Credit program allows companies to recover up to 25% of R&D costs, making Ireland one of the most attractive destinations for technology companies in Europe.
China
China actively supports IT companies through a tax incentives policy. Companies recognized as high-tech enterprises can benefit from a reduced corporate tax rate of 15% instead of the standard 25%. Tax holidays are also available for new companies, reducing their tax burden in the first years of operation.
These examples show that tax incentives play an important role in the development of the IT sector, providing companies with financial resources for innovation and growth.
Conclusion
Thus, tax incentives for residents of the Hi-Tech Park of Belarus represent a significant tool for supporting and developing the country’s IT sector. These advantages contribute to creating a favourable investment environment and attracting highly qualified specialists, which, in turn, strengthens Belarus’ position as one of the IT centres in Eastern Europe. Given the dynamic development of technology and the increasing competition in the international arena, Belarus has provided comfortable conditions for doing business in this area. The strategic use of tax incentives helps not only HTP companies but also the economic growth of Belarus as a whole.
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